In just one week, the major averages have had a 3% swing from lows to highs. These gyrations go hand in hand with the high level of indecision investors are feeling right now. Can you blame them? Last week, and into the end of the day on Monday, the S&P 500 Index registered a 3% decline. In the next few days, all of those losses were recouped and then some. While investors breathed a sigh of relief, I don’t think we are out of the woods just yet. Most strategists blame the decline in stocks on the free fall in…
Insights & Advice
Tag: inflation
Things are heating up
“Don’t touch me; I’m too hot! Y tu lo sabes!” —Usnavi, In the Heights Ouch! Inflation is heating up enough to burn my fingers. Some quick numbers, and then I’ll try to avoid any more percentages. (Emphasis on “try.”) The Labor Department reported that inflation in June 2021, as measured by the Consumer Price index (CPI), increased 5.4 percent, year-over-year. That is the highest 12-month rate since August 2008. For context, commodity prices were booming then; oil prices hit a record $150 per barrel. The so-called “core rate” was up 4.5 percent during that same time. The core rate excludes items…
Market bears are baffled
On a weekly basis, at least one of the main market averages hits another all-time high. But the bears continue to expect a correction. Will they ever be right? Sure, but playing for a pullback is a losing proposition most of the time. You may get it right eventually, but the opportunity cost of staying on the sidelines can be, well, costly, as the bears are discovering this month. A much better way to prepare for the inevitable next market correction is simply to reduce your risk by adjusting your portfolio. That might mean trimming back your more aggressive holdings…
Markets grind ever higher
The S&P 500 Index is up 14% so far this year. Most other averages have similar double-digit gains. July is normally a fairly positive month (in general) for equities. Does that mean we can expect equities to continue their bull run through the summer? It certainly looks that way. Any pullbacks in stocks will likely be met by dip buyers. That could limit declines to a manageable level. A sustained rise in interest rates will likely wait until investors know—with certainty—the Fed’s next move. The thinking is that there will be an announcement on tapering bond purchases, which may not…
High risk, high reward?
Inflation has been high, based on the Consumer Price Index, or CPI. The Bureau of Labor Statistics reported that the CPI was up 0.6 percent in May 2021 and rose 5 percent over the previous 12 months. Both are big numbers and well above historical trends. The Federal Reserve has repeatedly said that the high inflation is “transitory.” Others expect high inflation to continue unabated. I don’t understand why people argue either/or. I suspect some forces will push inflation consistently higher but not to a ruinous level. (I do believe that continuing at a 5 percent rate would be ruinous.) Let’s…
Fed feels inflation heat
This week’s Federal Open Market Committee meeting was a game changer. Fears that inflation may be rising faster than expected forced the Fed to adjust their timing on when to begin withdrawing monetary stimulus. The markets didn’t like that. It was a downside surprise that sent the U.S. dollar soaring, commodities plunging, and some equities sinking. What investors feared most at first was another “Temper Tantrum.” In 2013, and again in 2018, the Fed’s decision to withdraw monetary easing sent interest rates soaring and stocks plunging. However, it looks like this time around, the markets are taking the change in…
Inflation is running “hot”
May’s Consumer Price Index (CPI) jumped the most since 2009. That follows a similar gain over the past three months that has brought the total increase to 6.9% on an annualized pace. That is the largest gain in 13 years. Excluding the notoriously volatile food and energy components, however, the “core” CPI rose by 0.7%, which was still larger than the forecast of 0.5%. Readers might scratch their head when looking at those numbers, since excluding food and energy makes little sense to us, who are faced with weekly rises in both commodities. The difference is that the price of…
Pay up
Weekly pay is up 3.9 percent from March 2020 to March 2021, according to the Bureau of Labor Statistics. That may not sound like much. However, before the pandemic, growth rates had ranged from -0.8 percent to 2.9 percent, dating back to January 2011. From January 2011 to March 2020, there were 20 occurrences of zero or negative weekly earnings growth. In contrast, there were only seven occurrences that exceeded 2 percent. Year-over-year growth of weekly earnings since April 2020 has been stellar, averaging 5.1 percent. It’s not uncommon for average wages to grow higher during recessions. Sounds crazy, right? When…
Are Inflation fears real or imagined?
If you have been grocery shopping lately, there is no question that prices and inflation are going higher. The same can be said for the price of a gallon of gas. But is it a transitory event, or are we at the beginning of an inflationary era not seen in decades? Clearly, commodity prices, which are usually the harbinger of future inflation, are soaring. Copper, oil, sugar, corn, steel, aluminum and lumber, as well as many other food and material prices, are hitting multi-year highs. But it is not just commodities that are seeing a price surge. Shipping costs are…
Stocks grind higher as bond yields retreat
April is usually a good month for markets. Historically, it is one of the three best months of the year for equities. We all know what happens in May (‘sell in May and go away’) but we will worry about that later. Over in the bond market, the bond vigilantes may have started to doubt their conviction that inflation is a fait accompli and so yields must go up. This week, yields declined a bit, which gave a boost to some sectors (gold and silver, for example), while banks pulled back a little. But Friday’s Producer Price Index report for…
Cross currents confuse investors
You would think that with a $1.9 trillion spending package, an increasing rate of coronavirus vaccinations, and a potential $3 trillion infrastructure package waiting in the wings, the market would be at record highs. The fact it is not should tell you something about the indecision plaguing investors. When good news fails to impress, it usually means stocks (or at least some stocks) are headed lower. That should come as little surprise to readers. I advised investors to raise cash last month in preparation for what I see as a buying opportunity this month. The challenge: when do you put…
Rising rates create headwinds for stocks
The saga of rising interest rates in the long end of the U.S. Treasury market continued this week. Investors, fearing runaway inflation, sold both bonds and stocks. Will the selling continue, or is this a buying opportunity? It depends upon which asset class we are talking about. Yields on the 10, 20, and 30-year U.S. Treasury Bonds, I believe, will continue to rise. How far? It is possible that the benchmark “Tens” could finish the year at 2%. In the short-term, however, I expect yields to fall a bit on profit-taking. Last week, I warned readers that the rise in…
The coming economic boom
The nation should have a lot to celebrate in the coming months. Most economists are busily raising their forecasts for growth for the remainder of the year. If their forecasts are accurate, Americans can expect a booming economy this year and into 2022. The arguments for growth are straightforward. The number of Americans that are being vaccinated is now higher than the number of new coronavirus cases. By the end of May 2021, if government forecasts are correct, almost everyone in the U.S. that wants a vaccination should have one. As a result, we can expect to see a re-opening…
The Ides of March and the Market
It was a rough week in the markets. Investors were whipsawed throughout the week and finished down once again. I expect more of the same for investors this month. However, I don’t expect stocks to go straight down, find a bottom and then rebound. This downdraft is occurring at about the same time that markets sold off last year, but I do not expect the kind of severe correction we suffered through then. Overall, I am anticipating a 10-15% decline as I mentioned last week. Actually, as of Friday (March 5, 2021) morning, we have suffered a 6.3% decline from…
The Reflation Trade
Over the past six months, an increasing number of investors have come to believe that a rise in the inflation rate is inevitable. That appears to be a sound bet from where I sit, even though the present data doesn’t support that wager. The argument for increased inflation centers around money. The world is awash in the stuff. Central banks have been printing money for years to stimulate their economies. Last year’s pandemic only opened the monetary flood gates even further. And the trend is not over. During the next few months, here in the U.S., the Biden Administration is…
The Fed’s policy shift
Dalton — Investing in stocks just got more attractive because of a policy shift announced by the Federal Reserve’s Federal Open Market Committee on Aug. 27. Details are found in the Federal Reserve’s statement of longer-run goals and monetary strategy. That statement was initially presented in 2012, but as Fed Chair Jerome Powell put it, “since the economy is always evolving, the FOMC’s strategy for achieving its goals, or policy framework, must adapt to meet the new challenges that arise.” The gist of it is that the Fed will move from targeting an inflation rate of 2 percent to targeting an average of…